Thursday, 18 December 2008

Dollar No Longer Haven After Fed Moves Rate Near Zero

The world’s biggest currency-trading firms say the dollar’s appeal as a haven amid the financial crisis all but evaporated.

The U.S. currency slid to a 13-year low against the yen today and had its biggest one-day decline versus the euro after the Federal Reserve reduced its target interest rate yesterday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies. CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.”

A weak US dollar is very bad for the world economy since it currently underpins the oil trade. Countries that dump US petrodollars will only lessen the value of the greenback. The US economic bailouts are also unleashing a tidal wave of US dollars that are being used to prop up bankrupt businesses. In this environment the value of the US dollar must be severely diminished. This situation is likely cause hyperinflation in the US.

[Posted at the SpookyWeather blog, December 18th, 2008.]

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